Hermes Slumps on Handbag Supply-Demand Imbalance

Paris-based luxury accessory producer Hermes struggled to meet customer demand during the 2021 holiday period, Reuters reported Friday (Feb. 18).

For Hermes to post slower sales growth than that of its rivals during the key holiday period was unusual, according to the report.

“Hermes is one of the last large-cap luxury stocks to report, and this does not quite echo LVMH, Kering and Richemont’s recent results,” Citi analysts wrote in a report cited by Reuters.

Hermes International SCA shares, trading in Europe, fell sharply on the news Friday before ending the day down 4.3%

Sales at the division of Hermes that produces handbags brands Birkin and Kelly were off 5.4% during the holiday quarter, according to the report.

Hermes Executive Chairman Axel Dumas said the company has no plans to change its policy of fueling demand by limiting annual production growth to 7%, the report stated.

“It takes 15 hours for an Hermes bag,” he said, per the report. “Even if there’s a lot of demand, I’m not going to start doing them in 13 hours to raise production.”

He said Hermes trains about 400 craftsmen a year, according to the report.

“Contrary to what people may think, we’re always very sad when we have to say to our customers, ‘No,’ because we don’t have that,” Dumas reportedly said.

For the three months ended Dec. 31, Hermes reported sales of $2.71 billion, with much of the demand attributed to customers in the United States and China, the report stated.

Analysts told Reuters that Hermes posted a profit margin of 38.1% during the second half of 2021, compared to rivals’ profit margin during the period of 41% at the LVMH division that produces fashion goods and 38.2% at the Gucci division of Kering.